Lease bond proposed for $40 million Johnson County road projects

Initially, the county’s road project list spanned $307 million, and the county could fund $100 million in bonds for road projects by using the entire 0.2% Economic Development Income Tax, or EDIT, said Jeff Peters, financial advisor for the county’s redevelopment commission.

However, county officials want to tackle road projects in chunks, said Kevin Walls, county commissioner.

“We talked about $100 million to begin with, but we’ve scaled it back down to $40 million …We don’t know what the legislature’s going to do,” he said. “This is a small enough chunk that we can afford it and to move forward in just segments instead of one day it’ll be hard to manage a project that large.”

In February, bonding was presented as a way for the county to fund high-priority projects and free up savings held for underway projects that could be used for immediate maintenance, previously said Luke Mastin, highway department director.

However, plans to bond were put on hold until the 2025 legislative session ended, since some bills could affect road funding. Senate Bill 1 would provide tax cuts with no replacement revenue and House Bill 1461 would make the county responsible for bridges within cities and towns while also changing how Community Crossings Matching Grants are divvied up, Mastin said.

The lease structure presented to the council on Monday allows the redevelopment authority to issue bonds and the redevelopment commission to pay rental payments. The lease won’t extend beyond 20 years and the maximum annual rentals won’t exceed $3,300, the resolution says.

To pay for the bond, county officials would give revenue from the local income tax or other legally available funds to the redevelopment commission. The commission plans to pledge tax increment financing, or TIF, revenue to pay the lease rentals, according to the resolution.

This bond structure helps provide security for bond markets. While the council imposed the EDIT to go toward road projects or debt service for bond payments in 2022, the council will have to approve the income tax yearly starting in 2028 under state law and markets won’t look at the income tax as a good bond revenue stream, Peters said.

To combat this, the bonds will have to be secured with a different funding source, like the property tax base for the redevelopment commission, even though the county would still pay with the income tax, Peters said.

The lease bond structure also allows the county to protect its Interstate 69 and 65 TIF parcels. It prevents TIF areas to be picked off through annexations, Peters added.

With state law providing more LIT capacity to the county, things may be looking up for road funding. The county will be able to implement a new income tax system in 2028. The county could benefit from a 1.2% rate across the county for its portion, which would “probably double” revenue, while levying an income tax up to 1.2% outside of cities and towns with a population of 3,500 or more, Peters said.

“Those large cities and towns will have the ability to implement their own income tax, but the county or the smaller cities and towns, they can spread that LIT levy wide and they have to share 25% with the small cities and towns, but they can keep the other 75% to use it for county projects,” Peters said. “So again, you’ve got another avenue and additional capacity that you could have in income tax.”

While the resolution approving a lease between the Johnson County Redevelopment Authority and the redevelopment commission was unanimously approved Monday, the ordinance appropriating those funds to the redevelopment authority was just introduced. The ordinance will come back up at the Sept. 8 council meeting, said Tiffany Costley, county attorney.

A public hearing will be held at the Aug. 25 redevelopment commission meeting for the lease and resolution, she added.

On Monday, council member Jonathan Myers was glad the commissioners were moving forward in paying for road projects and believes county officials should move quickly.

“We’re taking the taxpayer’s dollar and we need to move forward with spending it on what it’s intended use was,” he said, “because we have inflation, we have material costs going up, so it shouldn’t be languishing in our coffers.”